"August 30 night trading hours, the United States cotton appeared a large decline, according to the normal market trading logic, in the August 31 day trading more or less Zheng Mian will follow the downward trend, but the fact is the opposite, the day Zheng Mian not only did not go down, but also oscillated up a lot." Xu Tonghai, a cotton trader in Shandong Province, told futures daily reporters that due to the large differences in market fundamentals, coupled with the fact that the main factors that dominate the price rise and fall of the cotton market at home and abroad are relatively special, the future development trend of the cotton market at home and abroad is becoming more and more difficult to grasp.
According to the reporter's understanding, domestic new cotton is about to be listed around September 15, the current in the southern Xinjiang region has been sporadic hand picking cotton for trading, the main body of the market on the new cotton scale price, output, quality, etc. are more concerned, but the market transaction logic focus is still focused on the huge price difference between the domestic and foreign cotton market. In the international market, the focus of attention of traders and industry entities is still the damage to the output of the weather in the main production areas, and the market is speculating on the theme of drought in the production areas, and it is estimated that it will take a period of digestion before it will change from the supply side to the consumption side.
The spread is staggering! Form a domestic cotton market to do long trading logic
In the previous period, the main cotton producing countries in the international market - the United States, India, etc. have had bad weather, the market expects that cotton production in various countries will decline to varying degrees, and the US Department of Agriculture in the monthly supply and demand report of agricultural products in August has sent a big surprise and a big gift to the market bulls for US cotton production, and guided the price of US cotton to continue to rise. At the same time, the market's once-seen expectation that the Fed's interest rate hike would weaken also helped international cotton prices rise, and commodity inflation expectations rebounded.
In contrast, the domestic cotton market, due to weak downstream demand, excessive inventory of old cotton, coupled with the impact of the "Xinjiang-related bill" more and more deeply into the industry, the listing time of new cotton is approaching, although the spot price of cotton futures has increased by 1500-2000 yuan / ton, but compared with the increase in US cotton, this range is still relatively small.
Since then, there has been a large price difference in the domestic and foreign cotton markets, such as according to the cost of tax payment of imported cotton, the price difference of cotton under the same quality is about 6,000 yuan / ton. Under the staggering price difference, in the face of an opportunity that may be able to obtain huge profits, the domestic and foreign markets quickly formed the logic of long Zheng cotton and short US cotton.
Niu Teacher, a senior researcher of cotton from Zhejiang, told reporters that the current import prices of cotton and corn are more serious, if you take into account the depreciation of the renminbi, the international cotton price is still strong, etc., although there are many professionals who are more bearish on domestic cotton prices, it is still impossible to prevent it from rising with the United States cotton. At the same time, from the conclusion analysis formed by some industry insiders holding a cotton industry meeting in Shanghai a few days ago, the market is more pessimistic, the main core is that new cotton will form a greater pressure after listing, and everyone is generally bearish on cotton prices. However, Teacher Niu does not recommend shorting. He believes that if it really falls, it is a buying point, mainly based on the time point and the factors faced by the cotton market this year are quite different from last year. In addition, Niu also believes that the divergence of the market will ultimately come down to the US cotton market, due to the serious inversion of imports, so everyone expects that the US cotton consumption data will continue to decline, which will cause the US cotton to continue to decline in the later stage, and the market's reaction to this will be less obvious in the short term.
"There are indeed many investment institutions in Jiangsu and Zhejiang, especially agricultural futures investors with large amounts of funds, who do more in the Zheng cotton market, and their main trading logic is that the price difference between the domestic and foreign cotton markets is huge." The person in charge of a futures investment institution in Shanghai told reporters that the huge price difference masks the reality that there are huge differences in the fundamentals of the two markets at the same time, and it is even more that everyone ignores the fact that the two markets are currently completely "separated". At the same time, due to the serious loss of the current inventory of Chen Cotton, it is impossible to "clearly" announce it to the public now, and some industrial enterprises and investors with Chen Cotton resources still have a fluke mentality, on the one hand, they hope that the collection and storage policy can be changed, so that the relevant institutions can "guarantee agriculture and workers" and "guarantee business". On the other hand, it is expected that the market demand will improve, in addition, it is also expected that the purchase price of new cotton can be as high as last year, and it will still "grab the harvest" under the pattern that the production capacity of the gin mill is still higher than the domestic cotton output. And what will the reality be?
"Split" market, who will take over?
"At present, the U.S. cotton market has begun to 'remove the ladder', the market speculation on dry weather is nearing the end, and when the USDA continues to revise its production and consumption in the later stage, the domestic cotton price will eventually lose its main basis." Of course, there is nothing wrong with arbitrage operations inside and outside the huge price difference between the internal and external markets, but the transaction will encounter a 'dead knot' in the end. The head of the business of a company that collects cotton planting, processing and trade in Zhengzhou City, Henan Province, said that if this market pattern exists for a long time, then domestic cotton will eventually need to find a new way out, and the current millions of tons of Chen cotton have not been taken over, so will the ginnery take the initiative to "snap up" after the new cotton is listed? Without understanding the development trend of the market, the logic of "internal and external price difference" in market trading is still feasible, and when the market has become clear, the final receiver will definitely have to bear greater risks. In addition, some investors believe that in theory, Southeast Asia and other countries can import mainland cotton and cotton yarn, and export their own cotton and cotton yarn, and the final result is that the problem of the way out of mainland cotton will be solved, but it is estimated that this will not be "smooth" in the short term or even for several years.
The person in charge of a textile enterprise in Wuhan, Hubei Province, believes that when the acquisition of new seed cotton is only about 5.5 yuan / kg, where the market players in the industrial chain have too much enthusiasm to purchase Chen cotton, Zheng Mian 2209 contract has entered the delivery month, from the position volume to calculate its final delivery volume is limited, and Zheng Mian 2211 contract is not only a large position, but also continues to increase positions in recent days, it is estimated that the probability of Chen Cotton thrown in this contract is higher.
According to Xu Tonghai, Fed Chairman Powell has recently issued a relatively hawkish remark on interest rate hikes, and the tightening policy will fundamentally solve the inflation problem. At the same time, the weather in the main cotton-producing areas such as the United States has begun to improve, such as the United States cotton area has ushered in rainfall, and the growth and development of U.S. cotton has improved. In this context, investors who go long and short U.S. cotton must make a suitable choice, and the trading time window given by the market is limited. The main matters that deserve investors' attention are as follows: First, on September 11, the USDA will release the monthly supply and demand report for agricultural products in September. The second is the CIP report of the United States on September 13. The third is the opening price of domestic new cotton around September 15. The fourth is the Fed's interest rate meeting on September 22.
According to the data released by relevant domestic institutions, compared with the previous year, as of now, the sales volume of the whole country and the main cotton-producing areas in 2021/2022 has decreased significantly, such as the national lint sales volume decreased by nearly 2 million tons, and the sales volume in Xinjiang decreased by nearly 1.8 million tons. Before the new cotton is listed this year, there will be a large number of carry-over inventory in the market.
The monthly report on the supply and demand situation analysis of bulk agricultural products released by the Ministry of Agriculture and Rural Affairs in July showed that domestic lint sales were not smooth, and the weak quantity indicated that the progress was slow. What is important is that the current market expectations for a bumper harvest of new cotton are consistent, and the shrinking downstream demand is more recognized.
However, some people in the industry believe that the reason why some investors are bearish on cotton is nothing more than that the cotton market will have a serious oversupply pattern, and they excessively believe that Xinjiang cotton under the "traceability order" has "no way to go", and they hold a strong "ass to determine the head" philosophy. From a fundamental point of view, the market may not be so pessimistic. At a time when the price of cotton and cotton yarn on the mainland has become a "price depression" in the global market, the huge price difference will always be a great temptation for profit-seeking capital.
The new cotton listing is like Taishan pressing the top
Zhang, president of an agricultural cooperative in Hutubi City, told reporters that since August 7, there has been an epidemic in some parts of the local area, and some gin factory personnel have been "silent" for nearly a month, but the epidemic prevention and control has not hindered the management of cotton farmers on cotton fields, and the overall growth of local cotton this year is better than last year. However, the yield of different cotton fields may show a polar pattern, mainly because the yield of cotton fields that do not water is damaged, and the pattern of abundant yields of watered cotton fields has been determined.
"Last year, some ginneries could rent out at a price of 8 million to 10 million yuan, and this year's rental price was only 2.8 million yuan." President Zhang said that at present, many ginneries do not know how to do well, first, the loss of cotton acquisition last year was too serious, and more than 90% of the ginneries lost money. Second, the current ginning plant is tight on funds, if the new cotton wants to be acquired after listing, then it must first raise a deposit paid to the bank or a third party. From the perspective of the main bodies interested in intervening in the new cotton acquisition market, there are relatively few new entities. At the same time, although banks and other financial institutions are willing to lend money to allow ginners to harvest new cotton, it is estimated that the phenomenon of quantitative acquisition does not appear in large quantities.
According to the reporter's understanding, for the gin factory with large losses last year, the bank and so on are not willing to recycle the factory, and the new cotton is still more supportive of the gin factory to carry out new business before the listing, but the market situation is too complicated, and the gin factory alone cannot resolve a series of problems. For example, if the purchase is not in quantity, it will cause the production cost of lint cotton to be higher, and if it is "snapped up", it will directly increase the production cost, and the market does need to be "reorganized".
President Zhang told reporters that last year, the price of hand-picked cotton in southern Xinjiang was about 8.7 / kg, and it rose to more than 9 yuan / kg two days later. At present, hand-picked cotton has been sporadically listed in southern Xinjiang, and the market transaction price is 6.5 yuan / kg. Compared with the same period last year, there are currently no ginneries in the north and south of Xinjiang to open the scale to buy, and the purchase price of seed cotton that we estimate is 5.5-6 yuan / kg.
In the exchange with some industry insiders, the reporter learned that many large industrial enterprises and investment institutions plan to withdraw from the new cotton acquisition market this year, such as a cotton industry enterprise in Hubei and a large investment institution in Xiamen. Some insiders said that this year's new cotton yield has become a foregone conclusion, the current key problem is the need to solve the problem of who to buy, in the face of many difficulties, it is estimated that many ginneries and traders follow the cotton futures price to carry out business activities, then the logic of market transactions will change from the supply side to the consumer side, new cotton is definitely a "Taishan" that bulls need to face.
This article originated from Futures Daily